Archive for the ‘MTD (Making Tax Digital)’ Category

In February the Bristol East MP Kerry McCarthy asked whether HMRC had “assessed the effect” of MTD on “freelance workers in the creative industries” and “other specific sectors”.

The answer from Jane Ellison refers her to the impact assessment which, she says,

estimated the impacts averaged across the entire unincorporated business population, using established models, consultation feedback, stakeholder engagement and internal insight.

Well yes, up to a point. There are three different fields in the impact assessment which might be relevant to the question. First of all, is there any assessment of how much extra tax might be expected from different sectors? Is there a particular group whose tax behaviour is causing particular concern? We don’t know, because HMRC won’t give us the analysis of the tax figure.

I assume, though, that the question was angled more towards the costs imposed on businesses by the requirement to keep digital records. This is contained in the “administrative burden” figure, sometimes referred to as “red tape” – the cost of compliance with government regulation.

This is deep into policy wonk territory, of course, but there is a neat summary of the figures and how they’re arrived at here. Essentially HMRC spent half a million pounds in 2005 on getting KPMG to conduct a research project producing a “standard cost model”: assessing a baseline figure of how much it cost averagely competent averagely compliant businesses to fulfil the obligations the tax system placed on them. The result is better thought of as a score than an actual amount: it’s how HMRC scores its work on reducing the admin burden on business. It reduced the burden by ten per cent overall between 2006 and 2011 – but that is an average. It doesn’t mean that any one business would have felt a reduction of ten per cent of its costs from dealing with its tax. A lot of the result came from changes to the construction industry scheme, for example, so contractors and subcontractors in construction would have noticed huge changes: other industries may not have felt any benefit at all.

So Kerry McCarthy’s question isn’t answered at all by reference to the admin burden figure: the standard cost model doesn’t tell you whether the creative industries, or any other specific industry, will gain or lose by a change.

The more interesting field in the impact assessment, for these purposes, is the “other impacts” section. In a government divided into departments, with different departments having different priorities, the “other impacts” section is a kind of checklist. If the government says it wants to reduce its carbon footprint, for example, it can add a “carbon impact” assessment to the list of things that all departments have to think through before they introduce a regulatory change.

In this instance, it’s the small firms impact test – or, as it’s now called, the small and medium business assessment or SaMBA which is where the answer to Kerry McCarthy’s question might lie. This is where you might expect to find some granularity about how the policy might impact differently on different kinds of businesses…

So what does it actually say in the SaMBA in the MTD impact assessment…?

Small and micro business assessment: the MTDfB changes will improve the quality of record keeping, reducing the likelihood of mistakes (and attendant risk of unwelcome and costly HMRC compliance interventions) and help businesses to manage their cash flow more effectively. In the longer term, we anticipate a reduction in administrative burdens for these businesses.

The government recognises by their very make-up that this group includes businesses which are likely to be more affected by one-off transitional costs and digital capability issues, and may therefore find it more difficult to move to the new digital requirements.

In the consultation the government said that it wanted to consult on financial support to help some businesses make the transition to MTDfB. It sought views on the support required and what form this should take. Final decisions will be made before legislation is laid later this year.

Does this sound as though they have done some serious research into how different types and sizes of business will be affected? As if they have the granular data that would allow them to answer the question on how creative industries will be impacted?

Is there a communications manager for Making Tax Digital yet? Because – apologies if there is – but it seems to me the communications so far have been, well, pants. Apparently we are no longer MTE (Making Tax Easier) or even Making Tax Digital (MTD) for example, but “MTDfB”. This inelegant acronym stands for “Making Tax Digital for Businesses”, presumably because we don’t want to frighten the taxpayers horses by suggesting that pensioners and others on PAYE will have to play. Yet.

More importantly, there seems to be no plan to communicate with anyone outside the rather small circle of people who are already tax mavens, with those unrepresented businesses who will be hardest hit by the changes. You don’t believe me? Put “making tax digital” into google and hit the tab for “news”. There is virtually nothing in the general press, although the professional press is of course full of it – but no-one at HMRC is, seemingly, listening to them.

Well, generations of people have been trained to deliver unpleasant messages using the format “yes, and, but…” You start off by finding a point of commonality, something you can agree on. (Yes, it would be good if HMRC had a modern computer system.) Then you go on to add something else you think you can agree on. (Yes, it would be great if tax returns were prepopulated with the information HMRC already holds) and only then do you deliver the unwelcome message. (But making it compulsory to keep electronic records and update four times a year are terrible ideas!)

Yes, and, but.

It’s plain as the nose on your face if you look at the Treasury Select Committee’s report which helpfully summarises the responses under the heading “support for the principle” – yes, we welcome the digital principle, and we think the changes go with the grain of progress BUT… we’re worried about the timetable, about the lack of free software, and above all about mandation.

The whole basis of the current proposal is undermined in HMRC’s own Impact assessment. The projected extra tax in this parliament (to 20-21) is £945m. The projected extra costs to business in the same period? £920m. Extraordinarily, the impact assessment quantifies no costs for HMRC for the proposal, although the original consultation document justified mandation by saying that without it “the return on the £1.3bn investment in transforming tax administration would not have been realised” (para 2.6)

In short, HMRC, your comms are pants, you have misunderstood people’s feedback, and your numbers don’t add up. Sorry and all that.

Well, here we go: the responses to MTD are now live. There’s a ton of stuff to read, so I’m going to post my immediate responses “live” as I go through them. Watch this space! (or, temporarily turn off notifications if you get update notices)

The overview. It’s not easy to find. Starting from the “consultations” page on gov.uk I got all excited when today’s list showed MTD updated 31 January. But when you go to it, it’s not immediately obvious what’s been updated at all. The actual response document is linked from the paragraph that reads

Over 1,200 people responded to this online survey and individual responses were fed into the other consultations to support the government’s thinking. Many of the responses helped influence key outcomes.

Now, maybe it’s just me, but I wouldn’t immediately have thought that “other consultations to support the government’s thinking” was a signal for “look! Here’s the responses doc!” (updated 3.20pm)

2. Ah! I see! There’s an overview document (like there was for the original pack of consultations) Right then: here’s a link to the overview. Speed reading: first reaction? Great flying spaghetti monster but it’s a complacent piece of spin. Everything is for the best in the best of all possible worlds, and a committee of MPs has published a report but we’ve addressed “many” of their recommendations. (As I recall, the Treasury Select Committee report wasn’t happy at all). Not sanguine!

3.40 pm. Aha! I just had an email from the MTD correspondence address:

Dear stakeholder,

Thank you for responding to our consultations on Making Tax Digital last year. We’re extremely pleased with the level of response to the consultations and grateful for the time and effort that you took to send us your views.

A summary of feedback received, the government’s decisions and our next steps have been published today in six response documents on GOV.UK. If you’re short of time, we’ve also published a short overview which draws out the key conclusions from each of the consultations.

Over the consultation period, we held a number of events with interested parties to communicate and discuss the proposals, including face-to-face meetings, and webinars for the public and tax agents, which attracted over 3,000 participants. HMRC also attended a range of conferences and events to reach as many stakeholders as possible. Feedback from these events has also been considered as part of the formal consultation exercise.

Your input is important as it has not only informed the development of policy and draft legislation, but has also helped give us a clearer understanding of the needs of our customers as we implement Making Tax Digital.

Thank you again for your participation.

Jim Harra

Director General, Customer Strategy and Tax Design, HMRC

Onwards! Next reading: the revised impact assessment.

4. The impact assessment. Er, the admin burden savings figures have been revised. A lot. And, lo! The transitional costs of £100m, £500m and £350m to 2020 add up to £950m. Now, where have I seen that figure before…????

The MTDfB changes will contribute £945 million to the Exchequer by 2020 to 2021.

However as yet there is no sign of the promised responses to the seven consultations on the “making tax digital” proposals. And weren’t we supposed to be able to try out the free software in “autumn 2016′? Er, hello?

I don’t want to do my tax return, because it’s boring, and difficult, and it’s important you don’t get it wrong.

I don’t want to do my tax return, because it’s boring, and difficult, and important you don’t get it wrong, and it won’t make a blind bit of difference because I don’t owe them any money (or vice versa) anyway.

I don’t want to do my tax return because it’s boring and difficult and important you don’t get it wrong, and it won’t make any difference, and they know it all anyway.

I get a pension covered by PAYE, and I make less than the MTD threshold doing odds and ends of writing, and I get less than the dividend allowance on my non-ISA shares (actually, have I even got any non-ISA shares?) and less than the Personal Savings Allowance on my bank interest (actually, did the bank even pay me any interest?) and, honest go god, if they’d just take it and go away I’d happily pay the £100 fine not to have to fill in a tax return by the end of the month.

(I understand why they don’t do that, of course, because it would be a great tax loophole for people who really need to be doing a tax return)

But, honestly, every single thing that will be on my tax return is information already known to HMRC aside from my derisory three line accounts. Which is why I’m so interested in MTD. If it was a case of, “here’s your tax return, all you have to do is check over the figures, add your three line accounts and press send”, then it would be a boon for people like me.

Is that how we think it will work? Or am I, instead of once a year, going to find myself in a couple of years time sitting four or five times a year thinking “I don’t want to do my taxes…”

You may remember that in 2012 I published the rules for production of a tax impact assessment here, after I obtained them via a Freedom of Information Act (FoI) request. I remain surprised that they are not on the gov.uk publication schedule like the instructions for Regulatory Impact Assessments since they are the equivalent. Well, 2012 is a while ago, so on 7th November I made a FoI request for an updated copy and received an automated response with a reference number.

A month went by, so I sent a little reminder that the twenty working days deadline had been breached, and received an email back which said

Unfortunately I am currently unable to confirm your request for information being received by the Freedom of Information Team. I have noted the reference number you have provided would have been generated by one of the department’s online enquiry forms but am unable to trace your request…

The email went on to ask me for a phone number and I had a conversation with them where they said that my request – and, judging from the reference number, a number of others – had been lost in the system. I emailed it again directly, and I’m still waiting for a response.

Except… well, last week I received this:

Please do not reply to this email.

Thank you for contacting HMRC. You have submitted an on line enquiry using an incorrect system to a mailbox which is no longer monitored. Due to this, I am unable to reply due to Data Security issues. Could you please direct your enquiry to the correct department by following the attached hyper-link or by reviewing your Personal Tax Account, details for which are below:

Is this a phishing email? (Because who follows hyperlinks from emails, seriously?) Or is it a response to my original FoI request (which was made on the page I got from putting “FoI” and “HMRC” into Google – I find “incorrect system” a bit annoying tbh). Am I ever actually going to get a response to my FoI request – which I made twice, once to the automated system and once in a clear email to the person who had phoned me, and I imagine the information commissioner will find at least one of those to be a valid request. Look HMRC, what the hell is going on?

OK, but obviously the FoI form is a separate part of the HMRC computer system: a failure there won’t have any impact on the system they build for MTD, right? I mean, right???

Edit: this morning I received this response from the HMRC phishing email address:

Thank you for contacting HM Revenue & Customs.

The e-mail / phone call you received was from HM Revenue & Customs and is nothing to be concerned about.

If you think this communication is incorrect, you may wish to contact the relevant HMRC business area. HMRC contact details are published within the link below:

The Parliamentary Question is an arcane art: for the person asking, the art is to phrase the question as widely as possible so as to “fish” for at least some of the facts you might want to know. For the person answering, it is to give the minimum amount of information compatible with not actually lying in the person’s face.

Why? Why not just ask what you want to know and then answer the bloody question?

Here’s an illuminating exchange from the 5th December Small Business debate in the Lords, from Hansard, via the indispensable “they work for you” site:

Lord Vinson (Conservative)
To ask Her Majesty’s Government, in the light of the fact that most small businesses assess their profits annually in arrears, whether it is the intention of HM Revenue and Customs to make small businesses report their income and expenditure quarterly; and what assessment they have made of the feasibility of this requirement. (HL Deb, 5 December 2016, cW)

In other words, MTD, can it be done?

Lord Young of Cookham Lord in Waiting (HM Household) (Whip)
HM Revenue and Customs published a consultation document setting out the Government’s proposals on 15 August 2015 entitled “Making Tax Digital: Bringing business tax into the digital age”. The consultation included an initial assessment of the impacts on businesses. The consultation closed on 7 November. The government is currently considering the responses to the Making Tax Digital consultations and will publish its response and draft legislation in January, together with an updated Tax Impact Assessment.

In other words, we’ve done an initial impact assessment and we’ll refine it in January.

Let’s turn to that impact assessment, shall we?

Look at para 8.6 on page 60, for example:

…We recognise that many businesses will incur costs, including time costs in making the transition to a digital way of transacting with HMRC. However we do not yet have a granular understanding of what those costs will be to provide an estimate at this time.

An impact assessment is about costs, not about feasibility. The tax impact assessment process is about three costs: the cost or gain to the exchequer (i.e. the increase or reduction in tax due as a result of a change to the system), the cost or savings to the taxpayer (the administrative burden, in terms of the standard cost model – a very precise measurement of the average cost to the averagely competent business, but not a particularly robust or realistic assessment of the actual costs to an actual business) and, thirdly, the costs or savings to HMRC. The question Lord Vinson asked was, I think, whether businesses would be ABLE to operate MTD. The question Lord Young answered appears to have been an entirely different one.